What’s a DAO, and how it can change the future of business through online communities and a shared vision.
Decentralized = Online, global, uncensorable.
Autonomous = Self-governing.
Organization = Coordination & collaboration around shared objectives.
Would you share a bank account with people that are not even in the same room as you? Online friends you might never have met before and don't know what their real names actually are?
That's right, you're probably not part of a DAO.
A DAO, or decentralized autonomous organization, is a group of people who have entered into a contract with one another to reach a coordinated goal. It can be anything from collecting rare NFTs, to predicting stock market moves. And it usually exists to raise money for a specific purpose.
DAOs show great promise to be the future of organisation and work, so you'll be hearing a lot more about them in the near future.
The “decentralised” nature of the DAO means that decisions are made collectively, informed by community rather than a single figurehead.
Advocates for DAOs believe that they are the long-awaited replacement for centralized corporations. But critics have pointed out that there are many unknowns about the new trend and the implications behind being a part of one, warning that its unregulated nature could cause more harm than good.
DAOs are seemingly flat hierarchies, with no central leader or figurehead, relying on the entire community to make decisions instead. However, even though every DAO member has a say in how the organization is run and its direction, some have more say than others.
When someone becomes part of a DAO, the person buys into the group’s specially made crypto tokens. The more tokens a member owns, the more votes they have to cast.
DAO software can be accessed via a web browser but the backend infrastructure is cryptocurrency and payment networks such as Ethereum. If one computer tries to process a rogue payment, it will be rejected by all the others, and even if an entire continent were to ban Ethereum, the network itself would still run normally everywhere else.
Because the Ethereum network is virtually unstoppable, so are payments in its native currency, Ether ($ETH). This means that DAOs are free to contract and trade permissionlessly with any person or organization also on that network. The same goes for any decentralized cryptocurrency that supports DAO creation, such as Cardano ($ADA), Solana ($SOL), or Polkadot ($DOT).
Being unconstrained by regulation, DAOs can access labor anywhere in the world. Some DAOs will actively recruit, but most are simply open to contributions from anyone willing to give their time and effort in exchange for cryptocurrency.
Apart from the well-documented benefits of workforce diversity, DAOs have access to a far larger talent pool than traditional organizations whilst attracting pro-active individuals.
A hierarchy is an incredibly inefficient and wasteful way to structure an organization: Ideas that originate at the bottom of the hierarchy.
This is where DAOs diverge from traditional organizations. Usually, an organization derives its legitimacy from a government agency, such as the tax department, business bureau, charity commission, etc. Even for organisation's where this is not the case, most will need a regulated bank account.
In contrast, the infrastructure of a DAO is software that can be run organisations any computer, anywhere in the world, with no need for the blessing of a government department. Even the money they use is global, open-source and beyond the control of any government.
Membership of a DAO is determined by ownership of some of the DAO's 'token', which is issued on a blockchain like Ethereum and acts much like a digital membership card, enabling access to gated content, voting rights and other benefits.
As for DAOs, the promise of a large pool of money remains their main incentive.As for DAOs, the promise of a large pool of money remains their main incentive.
Celebrity crypto owners, such as Mark Cuban, have seen the promise in DAOs. The future of corporations could be very different as DAOs take on legacy businesses, entrepreneurs that enable DAOs can make money. If the community excels at governance, everyone shares in the upside.